DAX index stalls amid hawkish ECB talk; Zalando stock plunges

The German DAX index has entered a consolidation mode as global risks rose and as several European Central Bank (ECB) officials warned about interest rates. The index, which tracks the biggest German companies, was trading at €16,570, a few points below its all-time high of €16,995.

The DAX 40 and other European indices like the Stoxx 50 and FTSE MIB retreated as investors assessed recent statements from ECB officials. Speaking at the World Economic Forum in Davos, the Finnish and French central bank governors warned against rate cut bets.

The two argued that it was still too early to start talking about interest rate cuts since inflation was still stubbornly high. The most recent data by Eurostat showed that the headline Consumer Price Index (CPI) rose from 2.4% in November to 2.9% in December. The ECB has an inflation target of 2.0%.

There is a likelihood that inflation will remain stubbornly high in the coming months as the crisis in the Middle East escalates. Iran targeted a location that is near an American base in Iraq while Houthis continued targeting ships at the Red Sea.

The implication for this is that there will be logistics challenges, which will likely affect companies in the DAX index like Adidas, Continental, Volkswagen, and BMW. It is also leading to higher shipping costs.

Economists also changing their tune on when the Fed will start cutting interest rates. In a statement on Tuesday, Christopher Waller said that there was no hurry to start cutting rates since the economy was doing well while inflation shocks remained. 

Therefore, most economists believe that the initial rate cut will likely happen in June instead of March as analysts were expecting. Actions by the Fed and the ECB have an impact on German stocks because most of them are global companies with a presence in the US.

The DAX index will also be in the spotlight after China published weak economic numbers. The economy expanded by 5.2% YoY in the fourth quarter, missing analysts estimates. This figure was in line with what China’s premier said on Tuesday at Davos. This also explains why the Hang Seng and Nifty 50 indices retreated.

Zalando is the worst-performing DAX index company this year as it crashed by almost 20%. It is followed by companies like Infineon, BASF, Sartorium, and Covestro. All these companies have retreated by almost 10%. On the other hand, the top performers in the index are Rheinmetall, Qiagen, Airbus, and MTU Aero, which have a market share in the defense industry.

DAX chart by TradingView

The daily chart shows that the DAX 40 index has been in a consolidation phase after hitting its record high. It jumped to a record high of €17,000. It has retested the key support at €16,527, the highest point on July 31st last year. 

The index has remained above the 50-day and 100-day moving averages while the Relative Strength Index (RSI) has formed a bearish divergence pattern. Therefore, the German DAX index will likely remain on edge this week and then resume the bullish trend. It will likely move above €17,000 in the coming weeks.

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